The following examples show how to figure the credit for child and dependent care expenses. A filled-in page 1 of Schedule 2 (Form 1040A) that illustrates Example 1 and a filled-in Form 2441 (filed with Form 1040) that illustrates Example 2 are shown after the examples.

Jerry and Ann Jones are married and keep up a home for their two preschool children, ages 2 and 4. They claim their children as dependents and file a joint return using Form 1040A. Their adjusted gross income (AGI) is $27,500. Jerry earned $12,500 and Ann earned $15,000.

During the year, they pay work-related expenses of $3,000 for childcare for their son Daniel at a neighbor's home and $3,200 for childcare for their daughter Amy at Pine Street Nursery School.

They figure their credit on Schedule 2 as follows.

1)

Childcare provided by their neighbor

$

3,000

2)

Childcare provided by the nursery school

+3,200

3)

Total work-related expenses

$

6,200

4)

Dollar limit

$

6,000

5)

Lesser of expenses paid ($6,200) or dollar limit($6,000)

$

6,000

6)

Percentage for AGI of $27,500 (28%)

.28

7)

Multiply the amount on line 5 by the percentage on line 6 ($6,000 x .28)

Joan Thomas is divorced and has two dependent children, ages 3 and 9. She works at ACME Computers. Her adjusted gross income (AGI) is $29,000, and the entire amount is earned income.

Joan's younger child (Susan) stays at her employer's on-site childcare center while she works. The benefits from this childcare center qualify to be excluded from her income. Her employer reports the value of this service as $3,000 for the year. This $3,000 is shown on her Form W-2 in box 10, but is not included in taxable wages in box 1.

A neighbor cares for Joan's older child (Seth) after school, on holidays, and during the summer. She pays her neighbor $2,400 for this care.

Joan figures her credit on Form 2441 as follows.

1)

Work-related expenses Joan paid

$

2,400

2)

Dollar limit (2 or more qualified individuals)

$

6,000

3)

Minus: Dependent care benefits excluded from Joan's income

−3,000

4)

Reduced dollar limit

$

3,000

5)

Lesser of expenses paid ($2,400) or dollar limit ($3,000)

$

2,400

6)

Percentage for AGI of $29,000 (28%)

.28

7)

Multiply the amount on line 5 by the percentage on line 6 ($2,400 x .28)